Is a Roth IRA Tax-Deductible?

December 1, 2009

By: Mark Kennan

Contributions to Roth IRAs are never deductible.

No Deduction for Contributions

You aren't allowed to deduct your contributions to Roth IRAs on your income taxes. Unlike traditional IRAs, Roth IRAs offer after-tax savings, which means that instead of a tax deduction at the front end, you get your biggest tax breaks at retirement. (ref 1, p. 29) When you take qualified distributions -- those withdrawals after you're 59 1/2 years old and have had the account for five years or more -- you won't pay any taxes at all on your earnings. (ref 3, p. 30)

Retirement Savings Credit

Though you can't deduct your Roth IRA contributions, you may still be able to reap some tax benefits for your contributions if your income is low enough. The credit ranges from 10 percent to 50 percent of your contribution on up to $2,000 of contributions. This makes the maximum credit $1,000 per person, so if you're married and both make contributions, you can claim a credit of up to $2,000. To qualify, your income must fall below the annual limits, which differ depending on your filing status and adjust annually for inflation. (ref 1, p. 47-48)

Roth IRA Management Fees

If you pay your management fees for your Roth IRA with funds in the account, you can't take a deduction. But if you pay the fee with funds outside the account, it counts as a cost of producing income, which means it adds to your miscellaneous itemized deductions. The limit is that you can only deduct the portion that exceeds 2 percent of your adjusted gross income and only if you itemize your deductions. (ref 2, ref 4)

Losses Within Your Roth IRA

Losses within your Roth IRA are not deductible as long as the account remains open. For example, if your Roth IRA is worth $50,000 at the start of the year, but your investments don't do so well and by the end of the year, it's only worth $40,000, you can't claim a deduction. The only way you can claim a deduction for losses is if, after closing your Roth IRAs, the total amounts you've received in distributions is less than you put in. For example, say over the years you've put in $50,000 and you close out your Roth IRAs and only cash out $40,000. You can claim a $10,000 loss. But you can only claim the portion of the loss that exceeds 2 percent of your adjusted gross income. (ref 3, p. 36)